The Tax Appeals Tribunal has handed Nairobi City County a major legal victory after setting aside the bulk of a disputed KSh8.3 billion tax demand issued by Kenya Revenue Authority in a long-running dispute over PAYE, withholding taxes, VAT and statutory levies.

In its ruling, the Tribunal found that much of the assessment by KRA was not sufficiently justified and failed to adequately account for reconciliations and supporting documentation presented by the County Government during the audit and objection process.

“The Respondent’s assessment was grossly misstated, without due regard for reconciling items,” the Tribunal noted in part of the judgment, while also faulting the revenue authority for disregarding joint reconciliation findings previously undertaken by both parties.

The dispute arose after KRA conducted a compliance check on Nairobi County covering the period between 2019 and 2023 and later issued assessments amounting to more than KSh8.2 billion, citing alleged unpaid PAYE, withholding VAT, withholding income tax, VAT on county revenue streams and NITA levies.

However, the County Government challenged the figures, arguing that the assessment included duplicated invoices, voided transactions, exempt supplies, internal transfers and amounts already remitted to the tax authority.

The Tribunal ultimately upheld only the NITA levy component while affirming a reconciled tax liability of KSh130.7 million that had earlier been jointly agreed upon during reconciliation meetings between the two parties.

“The reconciled liability of KSh130,689,334.10 was confirmed,” the ruling stated, adding that the remaining contested assessments could not stand in their current form.